SHORT TERM: banks fail, "bailout plan" fails, market fails, DOW -778
Sunday evening Congressional leaders released a non-partisan draft of the Emergency Economic Stabilization Act of 2008. It appeared our illustrious politicians had come to agreement on addressing the credit pressures in the marketplace. Later in the night, members of the ECU reported to have bailed out four banks including the nationalization of the UK’s Bradford & Bingley. The Asian markets all closed lower. Europe opened lower and closed -4.80%. At around 8:00, while the US index futures were trading sharply lower. Citigroup (C) announced they had taken over the banking operations of Wachovia Bank (WB), as they had apparently failed as well. At 8:30 the core PCE was reported slightly lower, and consumer spending was flat. At the open the market gapped lower to SPX 1209 and continued to fall until it hit SPX 1164 at 10:00. This activity broke through important support at the 1179 pivot. At 10:00 the FED issued the following release in regard to market liquidity: http://www.federalreserve.gov/newsevents/press/monetary/20080929a.htm. The market bounced to 1176 by 11:00, as the 1179 pivot now acted as resistance. A further decline to 1161 followed, and then a bounce to 1172 by 1:30 as the House was voting upon the "bailout plan". When the bill failed to get the required votes the market plummeted. Nearing 2:00 the SPX made a new low for the downtrend at 1126. The potential Primary wave B rally had failed, along with the "bailout plan". The SPX then bounced to 1150, and just past 2:00 rejection of the bill was announced. The bill was rejected 228-205, as more than two-thirds of Republicans and 40 percent of Democrats opposed the bill. "We’re all worried about losing our jobs," Rep. Paul Ryan, R-Wis., declared in an impassioned speech in support of the bill before the vote. "Most of us say, ‘I want this thing to pass, but I want you to vote for it – not me.’" Politics before country ruled the day! After the bounce to SPX 1150, the market headed lower again as the SPX hit 1113 by 3:30. That’s a 100 point drop from friday’s close at SPX 1213. Then in the last half hour the market rallied, but it appeared there were "sell on close" orders forcing new lows for the day at SPX 1106. For the day the SPX/DOW were -7.90%, and the NDX/NAZ were -9.80%. Bonds gained over 1 1/2 points, Crude dropped $10.75, Gold rallied $20.50, and the Euro was lower. Tomorrow Case-Shiller home prices at 9:00, then the Chicago PMI and Consumer confidence.
Support for the SPX plummets down to 1090 and then 1061, with resistance at 1136 and then 1146. Short term momentum is quite oversold, and the near term indicators are getting quite oversold as well. For eleven months the bear market had been quite methodical in its decline. Of the four uptrends (Nov-Feb-May-July), only one had exceeded a 126 point rally. That was the two month uptrend from Mar-May. When the SPX hit a low two weeks ago thursday at 1134, and then rallied to 1265 in one day. This 131 point rally, based upon the previous action in the bear market, suggested an important bottom had occurred. Many other technical indicators also suggested the same. It was not to be! The characteristics of the bear market changed, as the market went into panic mode today. With the break below SPX 1134, the downtrend from the August SPX 1313 high is still underway. We turned medium term bullish too soon, and were wrong. Sorry! Best to your trading!
MEDIUM TERM: support breaks, downtrend makes new lows at SPX 1106
LONG TERM: neutral – anticipated Primary wave B fails to develop